In the short term, several new coal plants are being built in Japan to replace scrapped capacity. But there are signs investors are not flocking to invest in expensive new Japanese coal technology.
And in the long run, the investment environment for new coal technology is worsening. If Japan’s commitment to coal weakens, that will mean less demand for Australia’s exports.
Japan’s changing coal fleet
Almost all Japan’s nuclear power stations remain shuttered ten years after the Fukushima disaster. The Japanese government has positioned coal as a long-term hedge against the possibility the nuclear power restarts will not proceed as hoped.
However, Japan has also been criticised for its lack of ambition on plans to address climate change under the Paris Agreement.
Last month, the government signalled it will decommission about 100 inefficient coal-fired power units. It aims to reduce coal’s share of the power mix to 26% by 2030 – down from 32% in the 2018 financial year.
The big questions are: what are the prospects for Japan’s coal fleet, and what does this mean for Australia?
The Japanese government is supporting investment in newer plants, including some that use a high-pressure “gasifier” to turn coal into gas. But these types of plants are expensive to build. With a typical coal plant expected to operate for about 40 years, companies are wary of making huge outlays with relatively limited time to recoup the investment.
Reflecting this, last year Osaka Gas withdrew plans to build a 1.2 gigawatt (GW) coal plant in Yamaguchi Prefecture. Tokyo Gas, Kyushu Electric and Idemitsu also abandoned plans to build a 2GW coal plant in Chiba Prefecture near Tokyo. In total, 30% of planned investment in coal power has been scrapped since 2016.
Renewables are also becoming increasingly important. Japan has big plans for offshore wind power, and renewable electricity is falling in price.
Crucially, these dynamics are underpinned by shifts in Japan’s electricity market to encourage more competition. Over time, that should mean companies find it increasingly difficult to pass the costs of expensive investments in coal technologies to final customers.
The world will recover from the pandemic. But in the longer term, coal in Japan faces even stiffer headwinds – not least market competition and increasing renewables from offshore wind and other technologies.
This creates real questions about the appetite of Japanese companies to wage the increasingly risky bet that coal-fired power represents. Changes in Japan’s power market show the need for Australia to begin transiting to an economy less reliant on carbon-intensive exports.
As we emerge from the lockdown phase of the pandemic, there are many lessons to learn. One is that when given credible warning of an existential threat, it is better to act early and risk doing too much than to delay acting and face a much bigger and harder to solve problem when the warnings turn out to be correct.
While the pandemic will pass, one way or another, the problem of global heating, and its many consequences, is going to be with us for the rest of our lives, and those of our children and grandchildren.
Already the world has had decades of warnings, and has done little to heed them.
To hold the increase in global temperatures to 2⁰C, the world needs to reduce emissions of carbon dioxide by 25% over the next decades, and cut them to zero by 2050.
Current commitments are inadequate to achieve this.
In Australia’s case, the unjustified use of “carryover credits” means the government is actually proposing an increase in emissions over the next decade, with even larger increases likely in the future.
Quite simply, there is no way of prevent catastrophic climate change unless we stop burning coal to generate electricity, and do it sooner rather than later.
We need to switch 20-25,000 jobs
As of 2020, coal-fired electricity generation is the only major use of carbon-based fuels for which we have a well-developed and affordable alternatives.
For most other uses of carbon-based fuels, alternatives rely on using electricity, as in the case of electric vehicles and “green” hydrogen.
These alternatives are helpful only if the electricity that powers them is coal-free.
It finds that a transition from thermal coal mining could be managed fairly, without significant job losses and while protecting coal-dependent regions.
25,000 is not a big number
Contrary to widespread perceptions, thermal coal mining is not a major employer, and most workers in the industry are not miners in the ordinary understanding of the term.
According to the latest Labour Force Survey, in February 2020 coal mining employed about 43 300 people, down from a peak of 60 000 in 2012.
Since Australia’s coal output is roughly evenly divided between coking and thermal coal, it seems likely that about 20-25,000 are employed producing the thermal coal that is used for heating and electricity generation.
This compares with a Bureau of Statistics estimate of about 26,850 in renewable energy. A successful transition to a decarbonised electricity sector would require at least a doubling of the current growth rate of renewables, implying more than 26 000 new jobs.
Many of the jobs are transferable
Many of the people employed in coal mining in February 2020 were not miners in the ordinary sense of the term. About 14% worked in white collar (managerial, professional and clerical) jobs.
A large portion of the remainder, such as carpenters, truck drivers and labourers, worked in trades not tied to mining.
The exception is the category known as Drillers, Miners and Shot Firers, which accounts for about 20% of total mining employment. If the same proportion applies in coal mining, there would be around 5,000 specialist drillers, miners and shot firers in producing thermal coal.
A transition program for these workers could be funded for less than the government’s recently announced HomeBuilder.
The wages high, but the conditions are bad
Advocates of coal mining point out that coal mining generally pays higher wages than other industries, including the renewable energy industry. This partly reflects high levels of unionisation, which could be encouraged more broadly.
More significant is probably its reliance on socially destructive fly-in, fly-out working arrangements, which necessitate high wages to offset family separations.
An indication that the wages earned by workers in the mining industry represent
compensation for poor conditions can be derived from evidence on workforce turnover.
The mining industry is characterised by annual turnover of 20% to 30%, substantially higher than that for the labour market as a whole.
And much of the employment isn’t local
Largely because of fly-in, fly-out, the number of communities that depend on coal as the primary source of their local employment is small.
Moreover, in many cases, these communities, such as those of the Bowen Basin, are well endowed with solar and wind resources.
With appropriate planning (instead of the current chaos in electricity policy) these communities could be given priority in the development of utility-scale solar and wind generation, along with the necessary transmission links.
The result might be be a net gain in local employment.
On Monday the Minerals Council of Australia announced a Climate Action Plan, proclaiming the need for action to reduce the risks of human-induced climate change and expressing support for “world-wide decarbonisation”.
What it did not do was suggest that the 25,000 or so Australians who work in coal mining could be switched to other industries.
That has been the conventional wisdom for some time – that a switch of 25,000 jobs from one industry to another would be too much for Australia to handle.
Yet when the coronavirus hit, we shut down industries employing three million Australians overnight, and dealt with the economic consequences impressively.
We have demonstrated our capacity to do the same for the much more dangerous, if less immediate, risk of catastrophic climate change.
Because we are rich in coal and gas, Australia has been plagued with two decades of wars over climate policy. The wars have claimed three prime ministers: Kevin Rudd, Julia Gillard and Malcolm Turnbull. They have also, in the words of journalist Alan Kohler,
ruined Australia’s ability to conduct any kind of sensible discussion about economic policy and to achieve consensus on anything.
The response to the pandemic shows that consensus and effective, evidence-based policy are not impossible for Australia’s politicians. Faced with a crisis of life and death, they can put aside ideology and stare down vested interests.
The optimists among us hope they can do this with the life and death crises humanity is facing as the planet heats, and that the terrible fires last summer will have convinced our leaders climate change is real, and effective action urgent. So far, the calls for urgent action are louder from business than from political leaders. Innes Willox, the chief executive of the Australian Industry Group, has linked restoring growth after the pandemic to the achievement of net-zero emissions by 2050.
The federal government, by contrast, is championing gas as a “transition fuel” between coal and renewables. Prime Minister Scott Morrison’s handpicked chair of the National COVID-19 Co-ordination Commission, Nev Power, has strong links to the gas industry.
Calling gas a “transition fuel” at least admits the need for a transition. But gas also contributes to the planet’s heating, and the federal government has no plausible plan to meet Australia’s Paris target, nor to ramp it up, which must be done for a safe future.
The grip that coal and gas has on our political elites goes back to the 1960s, when minerals replaced wool as the mainstay of our commodity exports. Iron ore and coal led the way.
About the same time, mining’s social licence was being challenged by Indigenous Australians, who objected to mining on their traditional lands, and by environmentalists concerned about mining’s destructive impact on natural habitats. The miners’ response was a concerted public relations campaign to align their interests with the national interest by convincing Australians their prosperity depended on mining and should not be curtailed.
In this, the miners have been spectacularly successful. First, in the 1980s, they stymied the implementation of the Hawke Labor government’s plan for uniform land rights legislation, which would include protection of sacred sites, the right to royalties and a veto over mining on Indigenous land.
In Australia, unlike other common law countries, the Crown owns the minerals, so the veto would have given Indigenous owners more rights than freehold owners. Miners launched a furious public campaign centred on the argument that Indigenous Australians should not have special rights.
A decade later, after the High Court determined in the Mabo and Wik judgements that forms of native title had survived European settlement, the miners fought again to make sure the resulting legislation did not include any veto over mining; and it didn’t.
Second, they have delayed effective government action on climate change. At the end of the century, as pressure mounted for a reduction in the burning of fossil fuels, Australia’s coal producers organised to prevent the federal government from signing international agreements to reduce carbon emissions. Their core argument was that mining underpinned Australia’s wealth, but they also spread scepticism about climate change amongst conservative elites, turning it into an identity marker for the Australian right.
Under John Howard, fossil fuel advocates gained extraordinary access to government decision-making on climate and energy policy. This access was not given to environmental non-government organisations (NGOs) or climate scientists. So much for balance.
The power of the fossil fuel lobby was weaker after Howard lost the 2007 election. Later, it was unable to prevent the Gillard government from implementing a price on carbon and establishing a series of agencies to advance action on climate change.
But with Tony Abbott as prime minister, the industry’s power was back. Scepticism about climate science spread to science and expertise generally, undermining the federal government’s commitment to innovation and research. The fossil fuel lobby is not solely to blame for the Coalition’s philistinism under Abbott, but it bears some responsibility for its self-interested spreading of climate scepticism.
The mining lobby’s third success has been to capture the National Party and turn it into the party of coal and coal seam gas, even when extracting these destroys the good agricultural land on which our food security depends. This is an astonishing achievement.
In March 2019, on Network 10’s The Project, Waleed Aly asked Nationals leader Michael McCormack
Could you name a single, big policy area where the Nats have sided with the interests of farmers over the interests of miners when they come into conflict?
Off the top of his head, McCormack could not name one. Mining has so successfully aligned itself with perceptions of the national interest that the National Party now champions the jobs of miners more energetically than the livelihoods of the farmers it once regarded as the heart of the nation.
The biggest lesson from the pandemic is that governments are our risk managers of last resort. Ours, both state and federal, have been prepared to inflict massive economic pain on businesses and individuals to protect our health, and we are grateful.
As we face the much larger but more slow-moving crisis of the heating planet, governments must stare down the fossil fuel industry and its supporters, for all our sakes, even if this inflicts on them some economic pain.
If they can do it for the pandemic, they can do it for climate change.
Judith Brett’s Quarterly Essay, The Coal Curse, is out today.
Much has been made of the COVID-19 lockdown cutting global carbon emissions. Energy use has fallen over recent months as the pandemic keeps millions of people confined to their homes, and businesses closed in many countries. Projections suggest global emissions could be around 5% lower in 2020 than last year.
What about Australia? Here we’ve seen sizeable reductions in electricity sector emissions, but mostly from the sustained expansion in solar and wind power rather than the lockdown.
That is good news. It means our electricity sector emissions will not bounce back once COVID-19 restrictions are lifted, as they might in other parts of the world.
But on the other hand, a prolonged recession could cloud the outlook for new investments in the power sector, including renewables.
What’s clear right now is this: COVID-19 restrictions matter far less to Australia’s power sector emissions this year than the shift away from coal and towards renewables.
Small fall in electricity demand
We examined Australia’s National Electricity Market (NEM) in the seven weeks from March 16 (when national restrictions came into force) to May 4 this year. We compared the results to the same period in 2019.
The NEM covers all states and territories except Western Australia and the Northern Territory.
Total electricity demand was 3% lower during the first seven weeks of the lockdown, compared with the same period in 2019. About 2% of this was due to an actual fall in electricity use. The rest was due to extra rooftop solar panels installed since May 2019 which lowered demand on the grid.
Some of the 2% reduction may be due to cooler weather this autumn, leading to lower air conditioning use.
So while COVID-19 restrictions have hammered the economy in recent weeks, they haven’t had a big effect on electricity use. Most industrial and business power use has continued uninterrupted. Most office buildings have not fully shut down, although many people are working from home and use more electricity there.
A hefty drop in emissions
Despite the modest fall in electricity demand in the first seven weeks of lockdown, emissions fell substantially – by 8.5%. Comparing the first quarter of 2020 and 2019, emissions fell by 7%.
This is primarily because more renewable energy is now supplying the grid. Output from solar farms increased by 55% and from wind parks by 19% compared with the first quarter of 2019, reflecting massive amounts of new installed capacity coming online. Output from hydroelectricity increased by 18%, likely reflecting higher rainfall.
More renewables supply combined with falling demand means less output from fossil fuel power plants. Coal plant output fell 9% compared to the same period in 2019, entirely due to lower output by black coal plants in New South Wales and Queensland. Gas fired power output fell by 8%.
Electricity prices plunge
Meanwhile, wholesale prices in the NEM have fallen dramatically. The average price was 60% lower in the seven weeks since March 16 compared with the same period in 2019. A marked reduction in prices was evident from November 2019.
Why? One reason is that prices for natural gas are much lower and hence gas-fired power stations can make lower bids for electricity. Gas prices fell through much of 2019, and dropped further in the first quarter of 2020, associated with the pandemic-induced economic downturn. Gas plants often set the prices for everyone in the market, so this has a big effect on the market overall.
Also, coal and hydropower plants lowered their bids in this more competitive environment.
The outlook for wholesale prices remains flat. Gas prices seem unlikely to rebound soon. More wind and solar power will come into the market and there is no underlying growth trend in electricity demand.
Relaxation of COVID-19 restrictions is unlikely to make a big difference. What may drive prices up once again is the next large coal plant closure. The last one to close was Victoria’s Hazelwood plant in 2017.
What does this mean for coal and renewables?
Low wholesale electricity prices are good for consumers – in particular industry, where the wholesale price is a bigger proportion of the total charges for electricity supply. On the flip side, they mean less money for power generators.
Across the National Electricity Market, revenue for generators was about A$160 million per week lower during the first seven weeks of lockdown compared to the same period in 2019.
This revenue fall makes coal plants less profitable, and makes life uncomfortable for plants with relatively high costs for fuel and maintenance. It’s likely to push older plants closer to closure.
Lower prices also make investment in new renewable power less attractive. In recent years, average wholesale prices were well above the typical lifetime average costs of producing electricity from newly built solar and wind parks. There is also uncertainty around how prices will be set in power markets in the future, and how congestion of power transmission lines will be managed.
Nevertheless, the longer term prospects for renewables in Australia remain very good. Solar and wind power are the cheapest of all new generation technologies producing power, and solar power is expected to become even cheaper. A new coal-fired power plant, if one was ever built, would have far higher costs per megawatt hour. Costs for a nuclear plant would be higher still.
The way forward
The numbers show Australia does not need a painful recession to drive carbon emissions down. It needs sustained investment in new, clean technology.
The better the Australian economy recovers, the more private businesses will invest in new energy supply. But if the world falls into a deep and lasting recession, and the Australian economy with it, then the prospects for private investment in new power plants will suffer.
In that case, governments may be well advised to invest public funds in clean energy, more so than they have in the past.
Australia’s relative success in stopping the spread of COVID-19 is largely due governments taking expert advice on a complex problem. Unfortunately, the same cannot be said of decisions on projects that threaten the environment – most notably, Adani’s Carmichael coal mine.
Our research published today in Nature Sustainability documents how state and federal governments repeatedly ignored independent scientific advice when assessing and approving the Adani mine’s groundwater plans.
We interrogated scientific evidence available to governments and Adani over almost a decade. Our analysis shows governments failed to compel Adani to fully investigate the environmental risks posed by its water plans, despite concerns raised by scientists.
There is also evidence the government approval decisions were influenced by the political climate and pressure exerted by members of government.
Our findings come as the Morrison government conducts a ten-yearly review of the Environmental Protection and Biodiversity Conservation (EPBC) Act. It is critical these laws – Australia’s most important environmental legislation – are reformed to put rigorous, independent science at the core.
In mid-2019, the federal and Queensland governments approved groundwater management plans for Adani’s Carmichael coal mine. It granted the company unlimited access to groundwater in central Queensland’s Galilee Basin.
We and other experts warned the mine threatens to damage aquifers, rivers and ecosystems – in particular, the Doongmabulla Springs Complex. This system contains more than 150 wetlands which support rare plant communities found nowhere else on earth.
We analysed the full suite of evidence on the groundwater plans from agencies and scientists with expertise in hydro-geology. The evidence, provided to state and federal environment ministers, spanned almost a decade and included at least six independent scientific reviews.
The evidence highlighted major shortcomings, and gaps in knowledge and data.
For example in 2013, the federal government’s Independent Expert Scientific Committee on Coal Seam Gas and Large Coal Mining Development (IESC) said key geological characteristics in Adani’s groundwater model were not consistent with available field data.
Expert evidence from court-appointed hydro-geology witnesses in the Land Court of Queensland reiterated this concern and raised new questions over whether the source aquifer for the Doongmabulla Springs had been incorrectly identified.
Subsequent joint reviews by CSIRO and Geoscience Australia in February and June 2019 found Adani had failed to conclusively resolve these issues. The agencies also identified further flaws in Adani’s modelling, including interaction between groundwater and the Carmichael River that was again not consistent with field evidence.
The CSIRO and Geoscience Australia concluded the model was “not suitable to ensure the outcomes sought by the EPBC Act conditions are met”.
Governments under pressure
The federal government received the reviews from CSIRO and Geoscience Australia in February 2019. It did not publicly release them until then-environment minister Melissa Price announced approval of the groundwater plans on April 8. This was effectively the final federal approval the mine needed to proceed.
Media reports at the time suggested Price had been pressured by members of her government to issue approval before the election. What’s more, her department reportedly pushed the CSIRO to endorse Adani’s plans in just hours, and in the absence of critical information.
Within 48 hours of Adani’s approval being announced, the government called a federal election.
The Coalition was returned to power at the election. Federal Labor suffered heavy losses in regional Queensland – a result many claimed was due to their lukewarm support for the Adani mine.
The Queensland Labor government was also required to sign off on the groundwater plans. Following the federal election result, Premier Annastacia Palaszczuk directed that the assessment be completed quickly. The state approved the plans within four weeks.
This was despite being provided a scientific analysis by authors of this article and others, outlining key remaining scientific deficiencies in the groundwater plans.
Our analysis exposes flaws in how evidence informs major government decisions. It also shows why reform of the Environmental Protection and Biodiversity Conservation Act is so urgent.
The laws are currently under review. Many reputable organisations and scholars have proposed ways the legislation can better protect the environment, increase its independence from government and put science at the core.
Independent scientific committees, such as the federal IESC, are commissioned by governments to advise on mining proposals. We suggest such committees be granted greater powers to request specific data and studies from mining companies to address knowledge gaps before advice is issued.
Alternatively – or in addition – a new independent national commission should be established to oversee environmental impact assessments conducted by mining and other development proponents.
This commission should be empowered to interrogate and resolve key scientific uncertainties, free from political interference. Its recommendations to government should take into account a wide range of expert advice and public feedback.
This would not only improve the evidence base for decisions, but may also speed up assessments – ensuring more effective resolution of uncertainties that often lead to protracted conflict and debate about a mine’s impacts.
An Adani spokesperson provided the following response to the claims raised by the authors:
Adani’s Groundwater Dependent Ecosystems Management Plan (GDEMP) was finalised and approved by both the Australian and Queensland governments almost 12 months ago, bringing to an end more than eight years of heavily scrutinised planning and approvals processes.
The approvals were confirmation that the GDEMP complies with all regulatory conditions, following an almost two-year process of rigorous scientific inquiry, review and approvals. This included relevant independent reviews by Australia’s pre-eminent scientific organisations CSIRO and Geoscience Australia.
There are more than 270 conditions within the mine approvals to protect the natural environment and more than 100 of those relate to groundwater.
We’re now getting on with construction of the Carmichael Mine and Rail project, having awarded more than $750 million in contracts to the benefit of regional Queenslanders.
We remain on track to create more than 1,500 direct jobs during the construction and ramp up of our project and some further 6,750 indirect jobs. At a time when our country is facing some of its toughest challenges, we’re determined to deliver on our commitments of jobs and opportunities.
That’s the same amount 5.2 million people, or more than the entire population of Greater Sydney, uses in the same period. And it’s about 120 times the water used by wind and solar to generate the same amount of electricity.
Monitoring how much water is used by industry is vital for sustainable water management. But a lack of transparency about how much water Australia’s coal industry uses makes this very difficult.
Adani’s controversial Carmichael mine in central Queensland was granted a water licence that allows the company to take as much groundwater as it wants, despite fears it will damage aquifers and groundwater-dependent rivers.
Now more than ever, we must make sure water use by coal mines and power stations are better monitored and managed.
Why does coal need so much water?
Mines in NSW and Queensland account for 96% of Australia’s black coal production.
Almost all water used in coal mines is consumed and cannot be reused. Water is used for coal processing, handling and preparation, dust suppression, on-site facilities, irrigation, vehicle washing and more.
Coal mining’s water use rate equates to a total consumption of almost 225 billion litres a year in NSW and Queensland, which can be extrapolated to 234 billion litres for Australia, for black coal without considering brown coal.
About 80% of this water is freshwater from rainfall and runoff, extracted from rivers and water bodies, groundwater inflows or transferred from other mines. Mines are located in regions such as the Darling Downs, the Hunter River and the Namoi River in the Murray-Darling Basin.
The other 20% comes from water already contained in tailings (mine residue), recycled water or seepage from the mines.
The burning of coal to generate energy is also a large water user. Water use in coal-fired power stations is even harder to quantify, with a report from 2009 providing the only available data.
Water is used for cooling with power stations using either a once-through flow or recirculating water system.
The water consumed becomes toxic wastewater stored in ash ponds or is evaporated during cooling processes. Water withdrawn is returned to rivers which can damage aquatic life due to the increased temperature.
Data on total water use by coal mines is not publicly available. Despite the development of Australian and international water accounting frameworks, there is no reporting to these standards in coal mine reports.
This lack of consistent and available data means water use by the coal industry, and its negative effects, is not widely reported or understood. The problem is compounded by complex regulatory frameworks that allow gaps in water-use reporting.
A patchwork of government agencies in each state regulate water licences, quality and discharge, coal mine planning, annual reviews of mine operations and water and environmental impacts. This means that problems can fall through the gaps.
Digging for data
An analysis of annual reviews from 39 coal mines in NSW, provided data on water licences and details of water used in different parts of the mine.
Although they are part of mandatory reporting, the method of reporting water use is not standardised. The reviews are required to report against surface water and groundwater licences, but aren’t required to show a comprehensive water balanced account. Annual reviews for Queensland coal mines were not available.
Using this rate the total water consumed by coal mining is 40% more than the total amount of water reported for all types of mining in NSW and Queensland by the Australian Bureau of Statistics in the same year.
By the numbers
NSW and Queensland coal-fired power stations annually consume 158,300 megalitres of water. One megalitre is equivalent to one million litres.
A typical 1,000-megawatt coal-fired power station uses enough water in one year to meet the basic water needs of nearly 700,000 people. NSW and Queensland have 18,000 megawatts of capacity.
Coal-fired generation uses significantly more water than other types of energy.
In total, coal mining and coal-fired power stations in NSW and Queensland consume 383 billion litres of freshwater a year – about 4.3% of all freshwater available in those states.
The value of this water is between A$770 million and A$2.49 billion (using a range of low to high security water licence costs).
They withdraw 2,353 billion litres of freshwater per year.
The problem with large water use
Coal mining is concentrated in a few regions, such as the Hunter Valley and the Bowen Basin, which are also important for farming and agriculture.
In NSW and Queensland, the coal industry withdraws about 30% as much water as is withdrawn for agriculture, and this is concentrated in the few regions.
Coal mining and power stations use water through licenses to access surface water and groundwater, and from unlicensed capturing of rainfall and runoff.
This can reduce stream flow and groundwater levels, which can threaten ecosystem habitats if not managed in context of other water users. Cumulative effects of multiple mines in one region can increase the risk to other water users.
The need for an holistic approach
A lack of available data remains a significant challenge to understanding the true impact of coal mining and coal-fired power on Australia’s water resources.
To improve transparency and increase trust in the coal industry, accounting for water consumed, withdrawn and impacted by coal mining should be standardised to report on full water account balances.
Despite a wealth of evidence to the contrary, some still propagate the myth that the world will need Australian coal for decades to come. Last weekend Opposition Leader Anthony Albanese joined in, saying thermal and metallurgical coal mining and exports would continue after 2050, even with a net zero emissions target.
Metallurgical coal (or “coking coal”) is mined to produce the carbon used in steelmaking, while thermal coal is used to make steam that generates electricity.
Albanese argues there’s no replacement for metallurgical coal, but this is not the case. The assertion stems from a fundamental misunderstanding of modern steelmaking, and places Australian manufacturers at risk of missing out on massive opportunities in the global shift to a low-carbon economy.
Just as thermal coal can be replaced with clean energy from renewables, we can use low-emissions steel manufacturing to phase out metallurgical coal.
Australia manufactures a relatively small amount of steel – 5.3 million tonnes, or 0.3% of world output. Yet, we’re one of the biggest exporters of raw materials for steel production.
There is potential to not only strengthen Australia’s steel manufacturing industry, but also to grow it using the ore (rock containing metals like iron) we currently export and our extensive renewable energy sources.
Doing so would work to our manufacturing strengths, history, abundant resources, and would cater to the future low-carbon market that will still require steel.
There are a few ways we can do this.
Seventy-two per cent of the world’s virgin steel (steel made from ore, not from recycled material) is created from a high emissions manufacturing process – via the integrated steel-making route. This involves a blast furnace and a basic oxygen furnace, using coal, coke, iron ore and gas.
We can replace the coal and coke with rubber tyres that would otherwise end up in landfill, as shown by University of NSW’s Professor Veena Sahajwalla, who dubbed this process “green steel”.
Right now we can also boost the recovery of steel from landfills in greater percentages. According to a 2018 national waste report, Australia generated an estimated 67 million tonnes of waste in 2016-17.
Steel makes up 2.5% of this. That’s more than 1.5 million tonnes, enough to build 150,000 buses.
‘Direct reduction’ from renewable hydrogen
But the best way to reduce emissions in steel manufacturing is to shift to “direct reduction”. This process produces more than 60 million tonnes of primary steel each year.
And almost 50 plants around Australia already make steel this way. It results in 40% lower greenhouse gas emissions, while supporting a viable and thriving manufacturing industry, which uses our own raw materials rather than exporting them.
Here’s how it works. Direct reduction removes the oxygen in ore, which produces metallic iron. The chemical reaction that drives this process uses carbon monoxide and hydrogen, sourced from greenhouse gases – reformed natural gas, syngas or coal.
But there’s no reason these fossil fuels can’t be entirely replaced with renewable hydrogen in the near future.
We’ve seen this from two leading direct-reduction technologies, called Midrex and Energiron. Both use fossil fuels, but also with a high proportion of hydrogen. In fact, Energiron facilities can already use up to 70% hydrogen, and they’ve also trialled 100% hydrogen.
At least five companies in Europe are also working on producing low emissions steel. What’s more, three companies (SSAB, LKAB and Vattenfall) are collaborating to progress the technology, creating the “world’s first fossil-free steel-making technology, with virtually no carbon footprint” – called the “HYBRIT system”.
The key message is this: it is possible to create low-emissions steel, without metallurgical coal. And it is already happening.
With the support of industry and government, non-metallurgical, low-emissions steel could provide an opportunity to create jobs, develop a decarbonised industry and extend the steel market’s contribution to Australia’s economy.
There’s not much stopping low-emissions steel from forming a core new Australian industry. Australia must address the costs involved in transitioning the infrastructure, to upgrade plants and processes.
But it needs to start with working from facts – and effective government support and vision.
The announcement by BlackRock, the world’s largest fund manager, that it will dump more than half a billion dollars in thermal coal shares from all of its actively managed portfolios, might not seem like big news.
Announcements of this kind have come out steadily over the past couple of years.
Virtually all the major Australian and European banks and insurers, and many other global institutions, have already announced such policies.
According to the Unfriend Coal Campaign, insurance companies have stopped covering roughly US$8.9 trillion of coal investments – more than one-third (37%) of the coal industry’s global assets, and stopped offering reinsurance to 46% of them.
Blackrock matters because it is big
The announcement matters, in part because of Blackrock’s sheer size.
It is the world’s largest investor, with a total of $US7 trillion in funds under its control. Its announcement it will “put climate change at the center of its investment strategy” raises questions about the soundness of smaller financial institutions that remain committed to coal and to a carbon-based economy.
Blackrock is also important because its primary business is index funds, that are meant to replicate entire markets.
So far these funds are not affected by the divestment policy. BlackRock’s iShares United States S&P 500 Index fund, for instance, has nearly US$23 billion in assets, including as much as US$1 billion in energy investments.
But the contradiction between the company’s new activist stance and the passive replication of an energy-heavy index such as Australia’s is obvious. The pressure to find a solution will grow.
In time, the entire share market will be affected
One solution might be for large mining companies such as BHP to dump their coal assets in order to remain part of both Blackrock’s actively managed (stock picking) and passively managed (all stocks) portfolios.
Another might be the development of index funds from which firms reliant on fossil fuels are excluded. It is even possible that the compilers of stock market indexes will themselves exclude these firms.
The announcement has big implications for the Australian government.
Blackrock chief executive Laurence Fink noted that climate change has become the top issue raised by clients. He said it would soon affect all all investments – everything from municipal bonds to mortgages for homes.
Once investors start assessing government bonds in terms of climate change, Australia’s government will be in serious trouble.
Australia’s AAA rating will be at risk
The bushfire catastrophe and the government’s inadequate response have shown the world Australia is both among the countries most exposed to climate catastrophe and one of the worst in terms of contributions to solutions.
Once bond investors follow the lead of Blackrock and other financial institutions, divestment of Australian government bonds will follow.
This process has already started, with the decision of Sweden’s central bank to unload its holdings of Australian government bonds.
Taken in isolation, Sweden’s move had virtually no effect on Australia’s bond prices and yields. But the most striking feature of the divestment movement so far is the speed with which it has grown from symbolic gestures to a severe constraint on funding for the firms it touches.
The effects might be felt before large-scale divestment takes place. Ratings agencies such as Moody’s and Standard and Poors are supposed to anticipate risks to bondholders before they materialise.
It’ll make inaction expensive
Once there is a serious threat of large-scale divestment in Australian bonds, the agencies will be obliged to take this into account in setting Ausralia’s credit rating. The much-prized AAA rating is likely to be an early casualty.
That would mean higher interest rates for Australian government bonds which would flow through the entire economy, including the home mortgage rates mentioned in the Blackrock statement.
The government’s case for doing nothing about climate change (other than cashing in on past efforts) has been premised on the “economy-wrecking” costs of serious action.
But as investments associated with coal are increasingly seen as toxic, we run an increasing risk that inaction will cause greater damage.
Months after Labor’s shock election loss, it is still pondering how the Liberals metamorphosed from party of the bosses to party of the workers – one that stole an election win from under them.
At the May 18 federal election, several working class seats in Queensland did not fall into Labor’s hands as expected, and the party narrowly retained others in New South Wales with large negative swings.
They include the coal seat of Hunter, north of Sydney, where Labor’s resources spokesman Joel Fitzgibbon suffered a 10% swing against him. He this week claimed constituents were scared off by Labor’s ambitious emissions reduction goal – which necessarily entails curbing the burning of fossil fuels such as coal.
But cosying up to coal is not the way forward for Labor. Instead, it must find the common ground that unites workers in the cities and the regions – job insecurity – and build a consensus for climate action on that basis.
Neo-liberalism has gutted coal communities
The rise in populist votes in Australia is to an extent part of a larger global movement spanning the UK’s Brexit vote, the election of US President Donald Trump, and the rise of far-right agitators across Europe. In Australia, as abroad, this process is the outcome of almost 50 years of neo-liberalism.
Large companies have departed from industrial heartlands, relocating abroad without implementing the same level of social protection and welfare. Blue-collar jobs have been supplanted by white- or pink-collar positions, offering careers in the immaterial world of finance and the service economy.
For some, this shift is not a bad thing, as it opens opportunities in less gruelling urban service jobs. But for working-class and coal communities, it means a loss of their way of life.
In their heyday, industrial factories were holistic experiences that synchronised workers’ lives to the rhythms of production. In coal communities, intergenerational attachments grew to the towns that were constructed to house mining workforces. So pervasive are the emotional attachments to mining that the prospect of moving into a different industry is not appealing to most. Not everyone wants to be a consultant, a service worker or a financial trader.
Labor is between a rock (of coal) and a hard place
This global trend pulls Labor in two directions. Urban workers in the services, finance or creative industries perceive climate change as the greatest threat to their futures and demand a transition from coal to renewables. Labor’s traditional base, however, is mining communities who feel threatened by the policies environmentalists are calling for.
Is there a way to navigate these apparently conflicting voter needs? Yes. But not by embracing coal and hoping city voters won’t notice. Instead, Labor must build a coalition across both coal communities and its urban base, recognising that the political issues around coal in Australia are about more than climate change.
The biggest threat to existing coal jobs is not climate policy, but the increased casualisation of the mining workforce. Coal miners are significant victims of what unions such as the the Construction, Forestry, Maritime, Mining and Energy Union has termed the “permanent-casual rort”.
Coal workers are increasingly employed on casual contracts through labour hire companies. They work the same shifts and do the same jobs for years, but are not entitled to paid holidays or sick leave and are liable to be sacked at any time.
This shift is not confined to mining and industrial manufacturing. Fewer than half of working Australians have full-time permanent jobs. Employers such as rideshare service Uber and others in the gig economy offer flexibility in exchange for exploitation, insecurity, and a lack of workplace protections.
Like coal miners, people working in the immaterial economy – many of whom are concerned about climate change – also face increasingly insecure workplaces.
Yet few on the side of climate action see these commonalities, or think of coal communities as potential allies.
Labor should broker a new kind of coalition
For Labor, a pro-coal message designed to win back coal miners will only alienate its urban base. Instead of flipping scripts between electorates, the party should build a broad coalition on the common job insecurity faced by both coal miners and urban, post-industrial workers.
This would create spaces of solidarity between environmentalists and miners. It would refocus the discussion from how environmental policy puts jobs at risk to how it can address workforce insecurity across industries.
Labor’s existing “Just Transition” policy goes part-way there. But it allocated just $15 million over four years to administer redundancies, and fund worker training and economic diversification. Judging by the election result, coal communities were not convinced by it.
Labor should look to the US, where the proposed Green New Deal promises to cut climate pollution while creating millions of safe, stable jobs, whether in weather-proofing homes, expanding railways or making wind turbines. It is underpinned by the notion that structural reform to address inequality is central to climate policy.
Coal miners are not ignorant of the changing economics of their industry. But Labor will gain ground only if it devises a climate policy that is environmentally sound and offers protection against precarious employment.
The announcement by Suncorp that it will no longer insure new thermal coal projects, along with a similar announcement by QBE Insurance a few months earlier, brings Australia into line with Europe where most major insurers have broken with coal.
US firms have been a little slower to move, but Chubb announced a divestment policy in July, and Liberty has confirmed it will not insure Australia’s Adani project.
Even more than divestment of coal shares by banks and managed funds, the withdrawal of insurance has the potential to make coal mining and coal-fired power generation businesses unsustainable.
As the chairman and founder of Adani Group, Gautam Adani, has shown in Queensland’s Galilee Basin, a sufficiently rich developer can use its own resources to finance a coal mine that banks won’t touch.
By the nature of their business, insurers cannot afford to indulge the denialist fantasies still popular in some sectors of industry. Damage caused by climate disasters is one of their biggest expenses, and insurers are fully aware that that damage is set to rise over time.
Even so, a sufficiently hard-headed company might choose to work both sides of the street – continuing to do business with fossil fuel companies, while also writing more expensive insurance against climate damage.
The bigger problem insurers face is the risk of litigation holding fossil fuel companies responsible for climate-related damage. For the moment, this is a potential rather than an immediate risk.
As US insurer AIG, yet to announce a divestment policy, has observed:
Based on our monitoring, while the overall volume of litigation activity has increased, past litigation seems to have largely been unsuccessful on numerous grounds including difficulties in determining and attributing fault and liability to a particular company, and the judiciary’s deference to the political branches of government on questions relating to climate change.
Recent development suggest these difficulties will be overcome.
It’s becoming easier to finger climate culprits…
Until recently, the most immediate problem facing potential litigants has been demonstrating that an event was the result of climate change as opposed to something else, such as random fluctuations in climatic conditions.
Scientific progress on this “extreme event attribution problem” has been rapid.
It is now possible to say with confidence that climate change is causing an increase in both the frequency and intensity of extreme weather and weather-related events such as extreme heatwaves, drought, heavy rains, tropical storms and bushfires.
The Bulletin of the American Meteorological Society has highlighted three extremes in 2016 that would not have occurred if not for the added influence of climate change:
a persistent area of unusually warm water that lingered off the Alaskan coast, causing reduced marine productivity and other ecological disruptions
the extreme heatwave that happened in Asia, killing hundreds and destroying crops
the overall global atmospheric heat record set that year.
…and to allocate liability
The second line of defence against climate litigation that has held so far is the difficulty of imputing damage to the companies that burn fossil fuels.
While it is true that all weather events have multiple causes, in many circumstances climate change caused by the burning of fossil fuels has been a necessary condition for those events to take place.
Courts routinely use arguments about necessary conditions to determine liability.
For example, a spark from a power line might cause a bushfire on a hot, dry, windy day, but would be harmless on a wet cold day. That can be enough to establish liability on the part of the company that operates the power line.
These issues are playing out in California, where devastating fires in 2017 caused damage estimated at US$30 billion and drove the biggest of the power companies, PG&E, into bankruptcy.
As a result there has been pressure to loosen liability laws, leaving the cost of future disasters to be borne by Californians in general, and their insurers.
Lawyers will be looking for someone to sue.
Adani is a convenient target
The question facing potential litigants is whether any single company contributes enough to climate change to make it meaningfully liable for particular disaster.
Adani’s Carmichael mine provides a convenient example.
Adani says the 10 million tonnes of coal it plans to mine will produce only 240,000 tonnes of carbon dioxide, but this is semantic trickery. The firm is referring only to so-called “scope 2” emissions associated with the mining process itself.
When the coal is burned it might produce an extra 30 million tonnes of carbon dioxide, amounting to about 0.05% of global emissions.
A 0.1% share of the damage associated with the California fires is US$15 million, enough to be worth suing for. Other similarly sized mines will face similar potential liabilities.
Once a precedent is established, any company in the business of producing or burning fossil fuels on a large scale can expect to be named in a regular stream of suits seeking substantial damages.
When governments are successfully sued…
The remaining line of defence for companies responsible for emissions is the history of courts in attributing climate change to decisions by governments rather than corporations.
In the Netherlands, a citizen action group called Urgenda has won a case against the Dutch government arguing it has breached its legal duty of care by not taking appropriate steps to significantly restrain greenhouse gas emissions and prevent damage from climate change.
The government is appealing, but it has lost every legal round so far. Sooner or later, this kind of litigation will be successful. Then, governments will look for another party that can be sued instead of them.
…they’ll look for someone else to blame
Insurance companies are an easy target with deep pockets. Despite its hopeful talk quoted above, AIG would find it very difficult to avoid paying up if Californian courts found the firms it insured liable for their contributions to a climate-related wildfires or floods.
This is not a message coal-friendly governments in the US or Australia want to hear.
But the decision of Suncorp to dump coal, just a couple of months after the re-election of the Morrison government, makes it clear that businesses with a time horizon measured in decades cannot afford wishful thinking. They need to protect themselves against what they can see coming.